Question

In: Economics

1. If the government sells U.S. Treasury bonds to finance its budget deficit, one would expect:...

1. If the government sells U.S. Treasury bonds to finance its budget deficit, one would expect: A. interest rates to rise. B. domestic investment to rise. C. tax rates to fall. D. inflation to rise. E. interest rates to fall.

Suppose the real interest rate in the economy is 3% and the nominal interest rate is 6%, what is the current inflation rate? a. 18% b. 9% c. 2% d. 3% e. 2.5%

Which of the following actions of the Fed will increase money supply in the U.S. directly? A. Purchase U.S. government bonds B. Increase the federal funds rate C. Increase the reserve requirement D. Increase the discount rate E. Ban sales of private mutual funds

Solutions

Expert Solution

1. A. interest rates to rise.

Explanation: The interest rate would rise with a rise in the demand for loanable funds.

2. D. 3%

Explanation: Inflation rate = nominal interest - real interest = 6% - 3% = 3%.

3. A. Purchase U.S. government bonds

Explanation: When the Fed buys bonds, money flows from the Fed to the banking system.

Rahul Sunny answered 1 year ago
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